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Lifeline Scientific (LSI)

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Tuesday 24 April, 2012

Lifeline Scientific

Final Results

RNS Number : 8633B
Lifeline Scientific, Inc
24 April 2012
 



24 April 2012

 

Lifeline Scientific, Inc.

("Lifeline" or "the Company")

 

Results for the Twelve Months Ended 31 December 2011

 

-  Investing for Growth  -

 

Lifeline Scientific, the medical technology company, announces results for the twelve months ended 31 December 2011.  Lifeline is focused on developing technologies to help improve clinical outcomes in transplantation. Its lead product, LifePort® Kidney Transporter, is a clinically proven, market leading renal preservation and transport system designed to address the global challenge of human donor organ shortages.

 

Financial Highlights

 

·      Revenue from transplantation products and services increased by 10.7% to US$24.2 million (2010: US$21.8 million), as a result of increased unit sales of LifePort Kidney Transporter and a significant increase in sales of solutions and consumable products

 

·      Gross margin increased to 63.8% (2010: 62.9%)

 

·      Operating profit decreased to US$1.9 million (2010: US$4.5 million) reflecting planned strategic investments in product development and geographic expansion

 

·      Cash of US$9.4 million at period end (2010: US$11.1 million)

 

Operational Highlights

 

·      Sales of 49 new LifePort Kidney Transporters, bringing the total installed base worldwide to 441

135 centres in 23 countries now employing LifePort Kidney Transporters

Initial sales recorded in Australia and three new transplant centres in Switzerland

Advances made in securing reimbursement within key European markets

 

·      Established South American regional office in Brazil (Sao Paulo) and secured initial orders of approximately US$0.95 million for LifePort Kidney Transporter and related consumables

 

·      Progress in China towards obtaining regulatory approvals and distribution for the Company's full suite of transplant products  

 

·      Progress made on LifePort Liver Transporter, which presently remains on track for initial clinical availability by the end of 2012 

 

Post period end

 

·      Regulatory approval received in Brazil from the medical regulatory authority, Agencia Nacional de Vigilancia Sanitaria, ANVISA, enabling full market access for the Company's complete line of clinical transplantation products

 

·      Study results from the landmark Machine Preservation Trial (MPT) published in the New England Journal of Medicine showed that 3-year graft survival is significantly greater in all transplanted kidneys machine perfused in the LifePort® Kidney Transporter compared to those stored in a traditional box of ice (static cold storage) (91% vs. 87%, p=0.04). i  The graft survival difference at three years was most pronounced for kidneys from expanded criteria donors (86% vs. 76%, p=0.01). Expanded criteria donors are those over the age of 60 or those over 50 with secondary health conditions such as hypertension or diabetes mellitus. Over the past decade, organs from these donors comprise nearly half of the deceased donor kidneys transplanted in the US and EU. ii,iii

 

David Kravitz, Chief Executive Officer of Lifeline, said:

 

"Our primary focus for 2011 was to make significant progress in our geographic expansion and key product development efforts; we strongly believe that the investments we have committed towards achieving these objectives will translate into sustainable revenue growth and profitability in the medium term. We are particularly pleased with the post period-end receipt of regulatory approval in Brazil, which now enables full market access in this increasingly important transplant market, and we have subsequently realised our first orders. Furthermore, our efforts toward obtaining regulatory clearances in China for our full suite of transplant products are advancing. I am also pleased to be able to reiterate the steady progress we have made in the development of our LifePort Liver Transporter, which is presently on track for initial clinical availability by year end 2012. 

 

Our accomplishments in 2011 have positioned us well for continued growth and we are excited about our prospects for the future."

 

For further information please contact:

 

Lifeline Scientific, Inc.

+1 847-294-0300

David Kravitz, CEO


Seymour Pierce

+44 (0)20 7107 8000

Sarah Jacobs / Mark Percy (Corporate Finance)


David Banks (Corporate Broking)


FTI Consulting

+44 (0)20 7831 3113

Simon Conway / John Dineen


 

About LifePort Kidney Transporter

Created with the challenges of organ recovery and transport in mind, LifePort Kidney Transporter is a proprietary medical device designed to provide improved kidney preservation, evaluation and transport prior to transplantation.  Today, it is widely recognised as the world's leading machine preservation device for kidneys. Employed by surgeons in over 135 leading transplant programmes in 23 countries worldwide, LifePorts have successfully preserved over 38,000 kidneys intended for clinical transplant. The product provides a sealed, sterile, protected environment where a solution is gently pumped through the kidney at cold temperatures to minimise damage while the organ is outside the body.  LifePort is lightweight and portable, allowing organs to be perfused from the time of recovery until transplant.  It is designed to travel unaccompanied by land or air, safely transporting the kidneys across town or between countries.  While the kidney is being perfused, LifePort records data on temperature, flow rate, vascular resistance and pressure every 10 seconds providing surgeons with additional data prior to transplant. LifePort is the only system with clinical outcomes data produced from an independent, prospective, randomised, statistically powered, multi-centre clinical trial. Study results have been widely published in scientific journals, including the New England Journal of Medicine. Data indicates that patients receiving LifePort preserved kidneys experienced significant reduction in the incidence and duration of delayed graft function and increased graft survival at 1-year and 3-years post transplant.  LifePort has also been recognised for its design and engineering. It has received prominent awards for design excellence from the medical device industry, has been selected for exhibition at the Smithsonian Cooper-Hewitt, National Design Museum and is part of the permanent Collection of The Museum of Modern Art (MoMA) in New York City.

 

About Lifeline Scientific Inc. 

Lifeline Scientific, Inc. is a Chicago-based global medical technology company with regional offices in Brussels and Sao Paulo.  The Company's focus is the development of innovative products that improve transplant outcomes and lower the overall costs of transplantation. Its lead product is the FDA cleared, CE marked and clinically validated LifePort Kidney Transporter. Devices for preservation of the liver, pancreas, heart, and lung are in late stage pre-clinical development.

 

 

Chairman's Statement

 

I am pleased to report that 2011 was a year of significant advancement for Lifeline Scientific. Revenues in transplantation products and services increased by 10.7%, with gross profit increasing to 63.8%. Our LifePort Liver Transporter programme also made important progress. Our global reach expanded with a regional office opening in Brazil and further market development in China.

 

Results

We have continued to increase sales and presence in the world's transplantation centres: by the end of 2011, LifePort Kidney Transporter was being used in 135 centres in 23 countries. Revenue in 2011 in our transplantation products and services increased by 10.7% to US$24.2 million (2010: US$21.8million) while operating profit was US$1.9 million (2010: US$4.5 million).

 

The increase in revenue was primarily the result of increased unit sales of LifePort Kidney Transporter and a significant increase in sales of our solutions and consumable products. Our decline in operational profit was a result of continued strategic investments in key geographic market expansion and product development, which we strongly feel will translate into growth in revenue and profitability in the medium term. At year end the Company had cash in hand of US$9.4 million (2010: US$11.1 million).

 

Geographic Expansion

We completed the establishment of our South American regional office in San Paulo and secured orders of US$0.95 million in LifePort Kidney Transporter products from this market during 2011. Following receipt in April 2012 of regulatory approval for our full LifePort product line in Brazil, we expect our commercial efforts in this market to gain momentum. We had initial sales of LifePort units into Australia and three new transplant centres in Switzerland. Advances in achieving reimbursement within key European markets and our progress in China towards obtaining regulatory approvals and distribution were also significant accomplishments in 2011 that should lead to solid future growth.

 

Product Development

Product line innovations aimed at meeting unmet needs in the global transplant market will continue to be a cornerstone of our future growth. In 2011 we advanced our product development efforts, most notably furthering commercial development of our LifePort Liver Transporter. We are pleased to report that steady progress has been made in the development of the device and related proprietary machine preservation solution, and we are presently on track for initial clinical availability by the end of 2012.

 

Finance 

In 2010 we expanded our working capital line with Silicon Valley Bank moving from US$1.5 million to US$3.0 million. During 2011 the Company entered into amendments to this credit agreement to reduce interest rates applied and provide for a US$0.75 million term loan to support the Company's growth plans.  This working capital line and term loan, coupled with cash on hand at year end (US$13.1 million combined), puts us in a strong position to fuel future growth.

 

Outlook

Our expanding worldwide commercialisation efforts and growing clinical adoption of our LifePort Kidney Transporter leaves me confident that sales will continue to advance. In particular, our efforts in Brazil are expected to gain momentum during 2012 following receipt of regulatory approvals to enable market access for our full suite of clinical transplant products.  We have made meaningful advancements toward obtaining regulatory clearances in China for our complete line of transplant products. The LifePort Liver Transporter and other LifePort product innovations are presently on plan for their initial clinical availability by year end. All of these developments create a positive and favourable outlook for Lifeline Scientific's future. 

 

John Garcia Chairman

5 April 2012

 

 

Chief Executive Officer's Review

 

"During 2011 we accelerated investment into critical geographic and product development programmes while delivering continued strong year over year growth in revenue and contribution margin within our core LifePort kidney preservation business. Driving further growth in this key clinical area will remain a major focus for us during 2012, while we continue to make meaningful investments in strategic geographic expansion, product line enhancements and new product development."

 

Our accomplishments in 2011 were guided by three main strategic initiatives:

 

·       Driving continued expansion into key geographic transplant markets

·       Responding to clinical needs and a changing regulatory environment through technology innovation

·       Securing our market leadership through strategic investments and sustainable revenue growth

 

Driving continued expansion into key geographic transplant markets

Our focus during 2011 remained the expansion of our core kidney transplantation-related business, primarily centered in the US and Europe. We continued to invest in developing new regions and in securing reimbursement within key European markets. Incremental investment in staff and infrastructure during 2012 will be targeted mainly to support anticipated international growth and ensure Lifeline Scientific is well positioned to respond to new market opportunities for the LifePort platform as they arise.

 

Along with US and European expansion, we made strong progress toward commercialisation in Brazil. With initial orders of approximately $0.95 million for the Company's LifePort Kidney Transporter and related consumables facilitated by government grants, leading transplant programs in the cities of Rio and Fortaleza are set to be the first adopters.   Brazilian regulatory clearances for the Company's full line of clinical transplantation products are now in hand, while training and market development efforts within key regions of Brazil were commenced in anticipation of full market access. These activities along with the extensive market development efforts expended during 2011 have reinforced our belief that the Brazil market offers substantial potential for Lifeline Scientific's products and services in the coming years.

 

We are also making progress in China, another promising emerging market for transplantation.  SFDA regulatory applications and distribution plans for our full suite of transplant products are advancing. These efforts are progressing in parallel with China's implementation of comprehensive new legislation (Regulation on Human Organ Transplantation), the nation's first significant step towards establishing a voluntary organ donation system. China's stated aims under their new regulations are supported by well-funded programmes and a national commitment to developing an ethical and sustainable organ transplantation system for its public and be accepted as a responsible member of the international transplantation community.

 

Market development activities have commenced with the securing of a distributorship agreement for our complete product line with an established China market leading transplant products distributor. Training and certification of clinical staff at leading regional kidney transplant hospitals has begun, while further training and support of our distributor's efforts around its LifePort Kidney Transporter market launch will be ongoing during 2012.

 

Responding to clinical needs and a changing regulatory environment through technology innovation

Meaningful innovations around several existing products as well the development of new product lines were also a major focus in 2011. LifePort Liver Transporter, one of our several new technology initiatives, made significant progress and presently remains on target for initial clinical availability by year end 2012. Due to the timing of availability of certain LifePort Liver Transporter components and vendor resources, approximately US$0.5 million of product development spend originally anticipated for the second half of 2011, is now expected to be incurred in 2012 and contribute to higher product development costs this year than in 2011.

 

To further our market leadership position, we continue to invest in technological enhancements for our LifePort Kidney Transporter. Several important new features underwent development during 2011 including GPS/GPRS, precision controlled oxygen delivery capability and enhanced data capture of key organ performance parameters, among others.

 

We have also developed a novel cannula designed to improve upon our prior models, including enabling LifePort use with living donor kidneys. These advancements arose as our response to demands from the field to address unmet needs. EU regulatory changes pertaining to the transportation of donor organs will also drive certain additional new developments.

 

Securing our market leadership through strategic investments and sustainable revenue growth

We see revenue and contribution margin within our core kidney transplantation franchise continuing the positive growth trend of prior years. While our strategic investments into geographic expansion and product development initiatives discussed above suggest that operating and product development costs for 2012 could be materially higher than 2011, given present conditions, we are confident that such investments are prudent and timely, aimed to translate into accelerating revenue growth and profitability in the medium term.

 

Our Future

The future for our company and our LifePort brand appears strong.

We have made solid progress toward building a market leadership position within the field of transplant medicine, while forging meaningful working relationships with clinical transplant and organ procurement communities worldwide. We remain committed to pursuing innovative research, market driven product development and carefully targeted geographic expansion. As worldwide demand for organ transplants continues to grow, compelling needs arise for more scientifically proven technologies to improve donor organ availability and transplantation outcomes.  We are grateful for the opportunity to play a part in filling these critical needs, while supporting the global transplant community in their noble mission to save lives of patients suffering from end stage organ disease.

 

 

David Kravitz Chief Executive Officer

5 April 2012

 

 

Consolidated Balance Sheets

31 December 2011 and 2010

2011

US$

2010

US$

Current Assets



Cash and cash equivalents

9,352,480

11,068,048

Receivables



Customers (Net of allowance for doubtful accounts of US$2,644 and US$2,744 as of 31 December 2011 and 2010, respectively)                                                                             

 

3,865,307

 

3,037,398

Employees

3,941

8,797

Grant

106,065

88,737

Inventories

2,022,621

1,638,665

Deferred tax asset

16,285

-

Income taxes receivable

183,057

-

Prepaid expenses and deposits

978,256

468,363

Total Current Assets

16,528,012

16,310,008

Non-current Assets



Property and equipment (Net of accumulated depreciation and amortisation)

1,287,054

969,219

Intangibles (Net of accumulated amortisation)

2,230,913

1,813,214

Deferred tax asset

1,023,400

-

Goodwill

Other

64,710

110,212

64,710

52,365

Total Non-current Assets

4,716,289

2,899,508

Total Assets

21,244,301

19,209,516

 

Current Liabilities



Accounts payable

1,276,053

2,408,635

Long-term debt due within one year

6,568

6,311

Capital lease obligations due within one year

32,285

24,780

Warrant liabilities

-

651,466

Accrued expenses



Salaries and other compensation

678,468

694,220

Other

853,304

491,748

Deferred rent

44,532

47,275

Deferred revenue

44,144

115,287

Total Current Liabilities

2,935,354

4,439,722

Non-current Liabilities



Long-term debt (Net of portion included in current liabilities)

Deferred rent (Net of portion included in current liabilities)

961,749

133,526

1,002,334

178,057

Accrued interest

253,780

267,719

Capital leases (Net of portion included in current liabilities)

29,989

26,362

Total Non-current Liabilities

1,379,044

1,474,472

Total Liabilities

4,314,398

5,914,194

 

Lifeline Scientific, Inc. Stockholders' Equity



Common stock, US$0.01 par value; authorised - 30,000,000 shares;

issued and outstanding 19,424,959 and 19,297,197 shares as of 31 December 2011 and 2010, respectively

 

 

194,249

 

 

192,972

Additional paid-in capital

93,786,981

93,419,411

Other accumulated comprehensive loss

(256,031)

(243,725)

Accumulated deficit

(76,148,329)

(79,623,442)

Total Lifeline Scientific, Inc. Stockholders' Equity

17,576,870

13,745,216

Non-controlling interest

(646,967)

(449,894)

Total Stockholders' Equity

16,929,903

13,295,322

Total Liabilities and Stockholders' Equity

21,244,301

19,209,516

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Consolidated Statements of Operations

Years Ended 31 December 2011 and 2010

2011

US$

2010

US$

Revenue



Product sales and service fee revenue

24,175,115

21,847,159

Grant revenue

1,215,989

1,323,231

 

Total Revenue

 

25,391,104

 

23,170,390

 

Cost of Revenue

 

9,181,055

 

8,593,001

 

Gross Profit

 

16,210,049

 

14,577,389

 

Operating Expense



Research and development

2,387,739

689,124

Selling, general, and administrative

11,816,377

9,358,193

Loss from disposals of property and equipment

9,566

-

Loss from abandonment of patents

105,622

-

 

Total Operating Expense

 

14,319,304

 

10,047,317

 

Income from Operations

 

1,890,745

 

4,530,072

 

Other (Income) Expense



Change in fair value of warrants

(599,264)

1,916,714

Interest expense

89,744

60,023

Interest income

(6,311)

(7,125)

 

Total Other (Income) Expense, Net

 

(515,831)

 

1,969,612

 

Income Before Income Taxes

 

2,406,576

 

2,560,460

 

Income Tax (Benefit) Expense

 

(871,464)

 

569,630

 

Net Income

 

3,278,040

 

1,990,830




Less: Net Loss Attributable to Non-controlling Interest

197,073

212,670

 

Net Income Attributable to Lifeline Scientific, Inc.

 

3,475,113

 

2,203,500

 

Basic earnings per share

 

0.18

 

0.12

 

Diluted earnings per share

 

0.17

 

0.12

 

Basic weighted average shares outstanding (in shares)

 

19,415,075

 

17,695,274

 

Diluted weighted average shares outstanding (in shares)

 

20,245,760

 

18,809,690

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Consolidated Statements of Changes in Stockholders' Equity

Years Ended 31 December 2011 and 2010

Lifeline Scientific, Inc. Stockholders

 


Total

US$

Shares

Par

Amount

US$

Additional Paid-in Capital

US$

Other Ac-cumulated Comprehen-

sive Loss

US$

Accumulated Deficit

US$

Non-controlling Interest

US$









Balance, 31 December 2009

 

5,243,184

 

17,446,704

 

174,467

 

87,415,833

 

(282,950)

 

(81,826,942)

 

(237,224)

 

 

 

 

 

 

 

 

Issuance of common stock related to cash and cashless warrant exercises

 

 

6,040,676

 

 

1,769,333

 

 

17,693

 

 

6,022,983

 

 

-

 

 

-

 

 

-









Issuance of common stock related to stock option exercises

 

 

26,852

 

 

27,160

 

 

272

 

 

26,580

 

 

-

 

 

-

 

 

-









Issuance of common stock in conjunction with equity financing

 

 

90,371

 

 

54,000

 

 

540

 

 

89,831

 

 

-

 

 

-

 

 

-









Professional fees in conjunction with equity financing

 

 

(276,935)

 

 

-

 

 

-

 

 

(276,935)

 

 

-

 

 

-

 

 

-









Stock-based compensation

141,119

-

-

141,119

-

-

-

 

Foreign currency translation

 

39,225

 

-

 

-

 

-

 

39,225

 

-

 

-









Net income (loss)

1,990,830

-

-

-

-

2,203,500

(212,670)









Balance, 31 December 2010

 

13,295,322

 

19,297,197

 

192,972

 

93,419,411

 

(243,725)

 

(79,623,442)

 

(449,894)

Issuance of common stock related to cash and cashless warrant exercises

 

 

87,484

 

 

92,012

 

 

919

 

 

86,565

 

 

-

 

 

-

 

 

-









Issuance of common stock in conjunction with option exercises

 

 

22,115

 

 

35,750

 

 

358

 

 

21,757

 

 

-

 

 

-

 

 

-

 

Professional fees in conjunction with equity financing

 

 

 

(1,588)

 

 

 

-

 

 

 

-

 

 

 

(1,588)

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

260,836

 

-

 

-

 

260,836

 

-

 

-

 

-

 

Foreign currency translation

 

(12,306)

 

-

 

-

 

-

 

(12,306)

 

-

 

-









Net income (loss)

3,278,040

-

-

-

-

3,475,113

(197,073)









Balance, 31 December 2011

 

16,929,903

 

19,424,959

 

194,249

 

93,786,981

 

 (256,031)

 

(76,148,329)

 

(646,967)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Consolidated Statements of Comprehensive Income

Years Ended 31 December 2011 and 2010




2011

US$

2010

US$







Net Income




3,278,040

1,990,830

 

Foreign Currency Translation




 

(12,306)

 

39,225

 

Comprehensive Income




 

3,265,734

 

2,030,055

 

Comprehensive Loss Attributable to Non-controlling Interest




 

(197,073)

 

(212,670)

 

Comprehensive Income Attributable to Lifeline Scientific, Inc.




 

3,462,807

 

2,242,725

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Consolidated Statements of Cash Flows

Years Ended 31 December 2011 and 2010

2011

US$

2010

US$

Cash Flows from Operating Activities



Net income

3,278,040

1,990,830

Adjustments to reconcile net income to net cash (used in)

provided by operating activities



Depreciation

319,934

333,165

Amortisation

121,815

44,400

Amortisation of discount on note receivable

-

(6,255)

Change in fair value of warrants

(599,264)

1,916,714

Stock-based compensation

260,836

141,119

Loss on disposal of property and equipment

9,566

-

Loss on abandonment of patents

105,622

-

Deferred taxes

(1,039,685)

-

(Increase) decrease in



Receivables

(883,126)

(405,844)

Inventories

(390,972)

(884,178)

Prepaid expenses and deposits

(510,504)

(235,626)

Other assets

(243,883)

25,559

Increase (decrease) in



Accounts payable

(1,077,634)

1,049,013

Accrued expenses

305,060

336,111

Accrued interest

(5,549)

(10,302)

Deferred revenue

(70,832)

(18,177)

Total Adjustments

(3,745,890)

2,281,405

Net Cash (Used in) Provided by Operating Activities

(467,850)

4,272,235

 

Cash Flows from Investing Activities



Payments of legal fees associated with patent filings

(645,136)

(486,466)

Capital expenditures

(661,143)

(342,910)

Proceeds from sale of property and equipment

6,684

-

Proceeds from sale of patent

-

120,000

Net Cash Used in Investing Activities

(1,299,595)

(709,376)

 

Cash Flows from Financing Activities



Borrowings (repayments) under capital lease obligations, net

13,918

(30,212)

Cash received from warrant exercises

35,282

4,645,815

Cash received from option exercises

22,115

26,852

Borrowings of long-term debt

-

1,333

Principal payments of long-term debt

(8,517)

(4,414)

Payments of financing fees

(1,588)

(186,564)

Net Cash Provided By Financing Activities

61,210

4,452,810

 

Effect of Foreign Currency Exchange Rate Changes on Cash

(9,333)

(16,563)

Net (Decrease) Increase in Cash and Cash Equivalents

(1,715,568)

7,999,106

Cash and Cash Equivalents, Beginning of Year

11,068,048

3,068,942

Cash and Cash Equivalents, End of Year

9,352,480

11,068,048

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

Note 1 - Industry Operations

 

Lifeline Scientific, Inc. (the Company), is a U.S. corporation whose common shares trade publicly on the AIM Market on the London Stock Exchange (AIM:LSI.c and LSI.s). The Company is in the business of delivering, to targeted medical markets, a portfolio of related proprietary technologies, which include devices, solutions, and protocols designed to maximise the use and availability of organs, tissues, and cells. The Company serves the kidney transplant market today with its LifePort product line, and also sells solutions to service the broader organ transplant industry. A LifePort Liver product line is planned for a launch during the year ending 31 December 2013, and other organ-related products are in development.  

 

Note 2 - Summary of Significant Accounting Policies

 

Principles of Consolidation

The Company was incorporated in the state of Delaware as Organ Recovery Systems, Inc. on 1 October 1998. On 20 December 2007, the Company changed its name to Lifeline Scientific, Inc. The Company is consolidated with the following subsidiaries:

 

Bowman Research, Inc. * (inactive after 31 December 2009)

ORS Europe, NV *

Cell and Tissue Systems, Inc. **

Organ Recovery Systems, Inc. *

ORS Representacoes do Brasil LTDA*

 

* A wholly-owned subsidiary

** 49% owned

 

Intercompany balances and transactions have been eliminated in consolidation.

 

The Consolidation Topic of accounting principles generally accepted in the U.S. (US GAAP) requires consolidation by the primary beneficiary where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The application of this guidance resulted in the consolidation of Cell and Tissue Systems, Inc. (CTS), which was created during the year ended 31 December 2005 and was deemed to be a variable interest entity. CTS was primarily formed to meet regulatory requirements in order to enhance its ability and capacity to apply for funding from available government sources. The Company contributed US$490 for the 49% ownership needed to form the variable interest entity. CTS has an accumulated deficit as of 31 December 2011 and 2010.

 

In accordance with the requirements of the accounting standard under US GAAP that establishes accounting and reporting standards for non-controlling interests in a subsidiary in consolidated financial statements, the Company classifies the non-controlling interest of CTS within the equity section of the consolidated balance sheets and separately reports the amounts attributable to controlling and non-controlling interests in the consolidated statements of operations for all periods presented.

 

Cash and Cash Equivalents

The Company considers all money market accounts and short-term investments with an original maturity of three months or less and U.S. Treasury money markets to be cash equivalents. The majority of cash and cash equivalents as of 31 December 2011 and 2010 were held through a single financial institution, and the balances held at times exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Receivables

Receivables are carried at original invoice or closing statement amount less estimates made for doubtful receivables. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts on a monthly basis and by using historical experience applied to an aging of accounts. A receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 90 days. The Company does not charge interest on past due receivables.  Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

 

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market.

 

Depreciation and Amortisation

The Company's policy is to depreciate or amortise the cost of property and equipment over the estimated useful lives of the assets using the straight-line method. The cost of leasehold improvements is amortised over the estimated useful lives, or the applicable lease term, if shorter.

 


Years

Grant assets

3-5

Computer equipment

3-5

Furniture and fixtures

5-7

Equipment under capital lease

5-7

Laboratory equipment

3-7

Leasehold improvements

5-8

Tooling and moulds

1-15

Vehicles

5

 

Long-Lived Assets

Long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable.  The Company periodically reviews the carrying value of long-lived assets to determine whether or not an impairment to such value has occurred.  Management believes that no impairment of long-lived assets exists at 31 December 2011 and 2010.

 

Intangibles

The cost of intangible assets are being amortised over the remaining lives of the assets as follows:

 


Years

Patents

17

License agreement

10

 

Legal fees associated with filings for patents that are pending are capitalised if management believes that it is probable that such patent applications will be successful. Patent costs are not amortised until the patent is obtained.  Additionally, during the year ended 31 December 2010, the Company signed an agreement that allows for the licensing of technology to support the Company's product development efforts.  The agreement is being amortised over the remaining estimated life of the licensed technology, or ten years.   

 

Goodwill

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets.  In accordance with accounting for goodwill under US GAAP, goodwill is not amortised, but instead tested for impairment on an annual basis. The Company early adopted the FASB ASU No. 2011-08, "Testing Goodwill for Impairment," in connection with the performance of the annual goodwill impairment test. Under ASU 2011-08, entities are provided with the option of first performing a qualitative assessment on none, some, or all of its reporting units to determine whether further quantitative impairment testing is necessary. An entity may also bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. During the years ended 31 December 2011 and 2010, the Company was not required to record any impairments to the carrying value of goodwill or indefinite-lived intangible assets

 

Deferred Rent

Minimum rent expense is recognised over the term of the lease. The Company recognises minimum rent starting when possession of the property is taken from the landlord.  When a lease contains a predetermined fixed escalation of the minimum rent, rent expense is recognised on a straight-line basis.  Any difference between the recognised rent expense and the amounts payable under the lease is reported as deferred rent in the consolidated balance sheet.  The Company records include a tenant allowance on its facility lease in Itasca, Illinois, which is recorded as a component of deferred rent and amortised as a reduction to rent expense over the term of the lease. Future payments for common area maintenance, insurance, real estate taxes, and other occupancy costs to which the Company is obligated are excluded from minimum lease payments.

 

Fair Value of Financial Instruments

US GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. US GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach, and the cost approach. Each approach includes multiple valuation techniques. US GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritises the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:

 

·      Level 1 - Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

·      Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data.

·      Level 3 - Unobservable inputs that are not corroborated by market data. These inputs reflect management's best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.

 

The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximates their fair values because of the short-term nature of these instruments. The carrying value of long-term debt approximates its fair values as the stated interest rates approximate current market interest rates of long-term debt with similar terms.

 

Product Warranty

Estimated future costs applicable to products sold under warranty are charged to expense in the year of sale, and the related liability is classified as current.  A summary of the account activity for the warranty accrual is as follows for the years ended 31 December 2011 and 2010.

 


2011

US$

2010

US$

Accrued warranty, beginning of year

69,071

36,188

Provision for warranty

246,711

184,091

Warranty claims

(243,499)

(151,208)

Accrued warranty, end of year

72,283

69,071

 

Revenue Recognition

Product sales revenue is recognised upon shipment of product to the client. Service fee revenue is recognised when services are performed.  Deferred and unbilled revenue is recognised in the consolidated balance sheets.

 

Grant revenue is recognised when earned. Grant revenues are deemed earned to the extent of the total allowable expenditures incurred, which are specified in the grant contract.  In some cases, a portion of the grant revenue is paid at the time the grant is initiated. These advances are deferred and recognised using the proportional performance model.  Unbilled services are at times recorded for revenue recognised to date and relate to amounts that are currently unbillable to the client pursuant to contractual terms.

 

The Company sells extended warranties on its LifePort product for a specific period of months. This revenue is deferred and recognised over the term of the warranties on a straight-line basis. 

 

Shipping and Handling Costs

Shipping and handling costs billed to customers of US$124,269 and US$130,930 are netted with expense and have been included in cost of sales on the consolidated statements of operations during the years ended 31 December 2011 and 2010, respectively.

 

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property and equipment, bad debts, intangibles, and accrued expenses for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The carrying value of the Company's deferred tax assets is dependent upon its ability to generate sufficient taxable income in the future. The Company has established a valuation allowance against its net deferred tax assets to reflect the uncertainty of realising the deferred tax benefits, given historical losses and limited history of current earnings. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realised. The Company is subject to U.S. Federal, state, and local taxes as well as foreign taxes in Belgium and Brazil.  During the year ended 31 December 2011, approximately US$1,040,000 of the valuation allowance was reversed to reflect the likelihood of future taxable income, which will most likely result in the utilisation of a portion of the Company's net operating losses.

 

The Company accounts for unrecognised tax benefits in accordance with US GAAP, which prescribes a more likely than not threshold for consolidated financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return. A tax position is recognised as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognised is the largest amount of tax benefit that is greater than 50% likely of being realised on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

 

Stock Options

In accordance with US GAAP, the Company accounts for the cost of employee services received in exchange for an award of equity instruments utilising the grant date fair value of the award. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. The expense associated with stock-based employee awards that require future service are amortised over the relevant service period.

 

Derivative Financial Instruments

The Company does not use derivative financial instruments to hedge exposures to cash flow risks or market risks. However, certain financial instruments, such as the warrants described in Note 7, have been classified as liabilities based on US GAAP guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity's own stock. Although the Company's warrants were indexed to the common stock of the Company and were classified in stockholders' equity, they do not meet the exception as clarified under US GAAP because the warrants are also indexed to a foreign currency, as the common stock trades in British pound sterling.

 

As a result, the warrants were not considered indexed to the Company's own stock, and as such, all changes in the fair value of these warrants was recognised in earnings until such time that the warrants were exercised or expired.

 

Management Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimates included by the Company in these consolidated financial statements relate to warranty reserves, allowance for doubtful accounts, the useful lives of patents, the useful lives of depreciable property and equipment, and the valuation allowance for deferred tax assets.

 

Research and Development

Expenditures relating to the development of new products and procedures are expensed as incurred.

 

Foreign Currency Translation

The financial position and results of operations of the Company's foreign subsidiaries are measured using the subsidiary's local currency as the functional currency. Assets and liabilities of the foreign subsidiaries are translated to U.S. dollars using exchange rates in effect as of the consolidated balance sheet dates. Income and expense items are translated at monthly average rates of exchange. The resultant translation gains or losses are included as part of the components of stockholders' equity designated as other comprehensive income.

 

Subsequent Events

The Company has evaluated subsequent events through 5 April 2012, the date the consolidated financial statements were available to be issued. In March 2012, the Company drew upon the term loan with Silicon Valley Bank in the amount of US$525,000 out of the US$750,000 available to the Company to support the Company's growth plans (See Note 8). 

 

Contingencies

From time to time, the Company may experience litigation arising in the ordinary course of its business.  These claims are evaluated for possible exposure by management of the Company and their legal counsel.  The Company believes that the ultimate resolution of any such matters will not have a material adverse effect on its consolidated financial position.

 

Note 3 - Notes Receivable

 

The Company sold a patent during the year ended 31 December 2008 and accepted a note from the purchaser in lieu of a cash settlement. The patent was sold for US$300,000 payable by a US$60,000 down payment and 24 installments of US$10,000. The Company recorded the present value of the note using a 10% discount rate, which the Company believed fairly represented the borrowing rate the purchaser may have obtained from an alternative lender at the date of the transaction. The unamortised discount on the note receivable was US$0 as of 31 December 2011 and 2010, and the Company recognised interest related to the note of US$0 and US$6,255 during the years ended 31 December 2011 and 2010, respectively. The note receivable was collateralised by the patent ownership. The note was paid in full as of 31 December 2010.

 

Note 4 - Inventories

 


2011

US$

2010

US$

Medical devices, parts, and solutions

1,662,266

1,235,265

Raw materials

360,355

403,400


2,022,621

1,638,665

 

Note 5 - Property and Equipment

 


2011

US$

2010

US$

Property and equipment in progress

Computer equipment

83,923

481,144

18,372

373,156

Furniture and fixtures

445,299

364,086

Equipment under capital lease

258,533

203,283

Laboratory equipment

1,444,037

1,365,965

Leasehold improvements

869,943

784,765

Tooling and moulds

568,678

554,329

Vehicles

166,647

77,819


4,318,204

3,741,775

Accumulated depreciation and amortisation

(3,031,150)

(2,772,556)


1,287,054

969,219

 

During the years ended 31 December 2011 and 2010, the Company recognised depreciation expense of US$319,934 and US$333,165, respectively.

 

Note 6 - Intangibles

 

Intangible assets consist of the following: 


2011

US$

2010

US$

License agreement

141,931

-

Patents issued

1,119,693

832,809

Patents pending

1,549,100

1,503,006

 

Less:  Accumulated amortisation

2,810,724

(579,811)

2,335,815

(522,601)


2,230,913

1,813,214

 

During the years ended 31 December 2011 and 2010, the Company abandoned patents issued and patents pending with an original cost of US$170,228 and US$0, respectively.

 

During the years ended 31 December 2011 and 2010, the Company recognised amortisation expense of US$121,815 and US$44,400, respectively.

 

The following schedule by year represents future intangible amortisation, assuming patent pending costs will be reclassified as patents issued and amortisation will begin at the midpoint of the following year:

 

Year Ending 31 December:

US$

2012

120,770

2013

166,332

2014

166,332

2015

166,332

2016

166,332

Thereafter

1,444,815


2,230,913

 

Note 7 - Warrants

 

At various times from July 2004 through June 2007, the Company issued currency denominated warrants in the amount of US$7,789,505, in connection with the issuance of convertible promissory notes, all of which were converted into common stock at the Initial Public Offering (IPO). The majority of the warrants remaining outstanding at the date of the IPO were not affected by the reverse stock split in accordance with the agreements. The warrants expired at various dates from March 2009 to January 2011. The determination of the actual number of common shares the warrants were convertible into at any point in time was derived by formula per the individual warrant agreements. As these were currency denominated warrants, the number of common shares ultimately issued upon exercise varied due to foreign currency translation adjustments between the British pound sterling and the U.S. dollar. These warrants represent 0 and 122,571 issuable shares of common stock outstanding as of 31 December 2011 and 2010, respectively.

 

In May 2008 and December 2007, in conjunction with the IPO, the Company issued warrants, which were convertible into common stock. The warrant holder could have exercised each warrant held to purchase a share of common stock at an exercise price of £1.95 (or US$3.02 as of 31 December 2010), or as adjusted as defined by the agreement. The 2008 and 2007 warrant grants expired during January 2011. The fair value of the common stock at grant date was less than the exercise price of the warrants. The number of common stock equivalent warrants granted was 2,570,884 and the value of the warrants on the date of grant was determined to be US$0.  The value of the warrants was calculated using the Black-Scholes option pricing model. These warrants represent 0 and 1,542,268 issuable shares of common stock outstanding as of 31 December 2011 and 2010, respectively.

 

In August of 2009, in conjunction with the terms of the Silicon Valley Bank loan and security working capital line of credit, the Company issued a warrant, convertible into 51,874 shares of common stock. The warrant was exercisable for a period of 5 years, at a share price of US$0.6506, the trailing 20-day market value of the Company's common stock at the grant date. The value of the warrant on the date of grant was determined to be US$16,493 during the year ended 31 December 2009 by the Black-Scholes option pricing model. This estimated fair value of the warrant was recorded as a prepaid expense in the current assets section of the Company's consolidated financial statements and was being amortised as additional bank charges, using the straight line method over the period from the date of issuance to the August 2011 maturity date of the credit facility. Charges related to this warrant totalled US$5,121 and US$8,247 during the years ended 31 December 2011 and 2010, respectively. This warrant was exercised during the year ended 31 December 2010.

 

Warrant activity during the years ended 31 December 2011 and 2010 is as follows:

 


Issuable Common Stock

Outstanding as of 31 December 2009

4,263,600

Granted

-

Exercised

(2,604,039)

Expired

-

Adjustment due to currency and share price changes

5,278

Outstanding as of 31 December  2010

1,664,839

Granted

-

Exercised

(125,593)

Expired

(1,539,215)

Adjustment due to currency changes and share price changes

-

Outstanding as of 31 December  2011

31

 

From 1 January 2011 through the warrant expiration of 7 January 2011, 125,593 of the 1,664,839 outstanding issuable common stock from warrants as of 31 December 2010 were exercised, resulting in 28,994 common shares issued by the Company. The remaining 1,539,113 warrants expired on 7 January 2011.  In conjunction with the 7 January 2011 expiration of warrants, the Company recognised US$599,264 in income in January 2011.

 

In addition, 102 miscellaneous warrants with no value attributed to them expired in November 2011. As of 31 December 2011, 31 miscellaneous warrants remain outstanding with issue dates from 2004 through 2005 and expirations between 2014 and 2015. No value is attributed to these warrants as they are deemed to be immaterial in value as they were subject to the effects of the 5,000 to 1 reverse stock split in connection with the Company's IPO on 7 January 2008.

 

From January 2009 through their expiration on 7 January 2011, the Company classified its warrants as deriviative financial instruments, and as such recognised the fair value of such warrants. The fair value of the warrant liabilities is as follows during the years ended 31 December 2011 and 2010:

 


Fair Value US$

Outstanding as of 31 December  2009

129,613

Exercised

(1,394,861)

Expired

-

Change in fair value

1,916,714

Outstanding as of 31 December  2010

651,466

Exercised

(52,202)

Expired

(599,264)

Change in fair value

-

Outstanding as of 31 December  2011

-

 

The following tables set forth by level within the fair value hierarchy the Company's warrant liabilities that were accounted for at fair value on a recurring basis as of 31 December 2011 and 2010. As required by US GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement within the fair value hierarchy levels.

 



Nonrecurring Fair Value Measurements




at Reporting Date Using:


Description

Fair Values as of 31 December

US$

Quoted In Active Market for Identical Asset (Level 1)

US$

Significant Other Observable Inputs (Level 2)

US$

Significant Unobservable Inputs

(Level 3)

US$

Total Income (Loss) for the Year Ended 31 December

US$







Warrant liabilities 2011

-

-

-

-

599,264

Warrant liabilities 2010

(651,466)

-

(651,466)

-

(1,916,714)

 

These warrants did not trade in an active securities market. No warrant value applies as of 31 December 2011. The Company calculated the fair value of these warrants as of 31 December 2010 by using the Black-Scholes option pricing model and the following significant observable inputs:

 


31 December 2010

Risk-free interest rate

0.08%

Expected volatility rate

4.90%

Dividend yield

0.00%

Expected life (years)

0.02

 

Note 8 - Line of Credit Agreement

 

During August 2009, the Company entered into a two-year working capital line of credit agreement with Silicon Valley Bank (SVB) to support potential future cash needs of the Company. This agreement provided for a revolving line of credit not to exceed an aggregate principal amount of US$1,500,000, limited to qualifying receivables as defined, and grants a security interest in and lien upon all of the assets of Lifeline Scientific, Inc. and Organ Recovery Systems, Inc. in favour of SVB. The outstanding principal under the revolving line of credit accrued interest at an annual rate of 2% above the prime rate. During August 2010, July 2011, and November 2011, the Company entered into amendments to this credit agreement, to extend the maturity to September, 2012, increase limits, reduce interest rates applied, and provide for a term loan to support the Company's growth plans. The working capital line limit has been increased to US$3,000,000, the interest rate has been reduced to prime plus 1.25%, and a US$750,000, 36 month term loan at a 5.50% unsecured or a 2.75% secured rate has been made available to the Company.  The Company did not borrow against either facility during the years ended 31 December 2011 and 2010. As of 31 December 2011 and 2010, the Company was in compliance with all covenants, which require the Company to maintain minimum Adjusted Quick ratio levels (in 2011) and earnings before interest, taxes, depreciation, and amortisation (EBITDA) levels (in 2010).

 

Note 9 - Long-Term Debt

 


2011

US$

2010

US$

Construction loan payable to the Company's landlord, payable in 60 monthly installments of US$711, interest to be charged at 6% and payments due in March 2010 through March 2015; unsecured.

22,411

30,671

 

Subordinated loan payable by ORS Europe, NV to IWT; at the option of ORS Europe, NV, principal and interest payable on an installment basis beginning May 2014 through February 2017; interest charged at an annual rate of 8.43% for all periods except 2010 and 2009, where interest charged at 5.77%; terms were extended for two years during both 2011 and 2009; debt subordinated to the intercompany payable to Lifeline Scientific, Inc.

945,906

977,974

 

Capital lease obligations, payable in monthly installments, including interest at various annual rates, payments due July 2009 through June 2016; secured by the underlying equipment.

62,274

51,142

Long-term debt, net

1,030,591

1,059,787

Less current maturities

(38,853)

(31,091)


991,738

1,028,696

 

Maturities on long-term debt other than capital leases are as follows as of 31 December 2011:

 

Year Ending 31 December:

US$

2012

2013

2014

2015

2016

Thereafter

6,568

7,669

244,493

315,459

315,302

78,826

Total minimum payments required

968,317

 

The following is a schedule by year of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of 31 December 2011:

 

Year Ending 31 December:

US$

2012

2013

2014

2015

2016

49,776

27,228

1,197

1,197

599

Total minimum payments required

79,997



Less amounts representing estimated executory costs

(10,231)

Less amount representing interest

(7,492)

Present value of net minimum lease payments

62,274

 

Note 10 - Income Taxes

 

Income tax (benefit) expense consists of the following components for the years ended 31 December 2011 and 2010:

 


2011

US$

2010

US$

Current

Federal

29,292

123,721

Foreign

-

-

State

138,929

445,909


168,221

569,630

Deferred



Federal

3,691,698

 2,137,648

Foreign

-

-

State

537,468

302,917


4,229,166

2,440,565

Valuation allowance

   (5,268,851)

  (2,440,565)

Total income taxes

(871,464)

569,630

 

The net deferred tax assets (liabilities) in the accompanying consolidated balance sheets include the following components:

 


2011

US$

2010

US$

Deferred tax liabilities



Property and equipment

(109,699)

(120,704)

Intangible assets

(758,363)

(646,449)


(868,062)

(767,153)

Deferred tax assets



Net operating loss carryforwards

22,024,205

26,007,275

Receivables

-

1,140

Inventories

141,325

111,745

Deferred rent

51,404

87,469

Accrued expenses

81,399

218,961


22,298,333

26,426,590




Net deferred tax assets

21,430,271

25,659,437

Valuation allowance

(20,390,586)

(25,659,437)

Net deferred tax assets

1,039,685

-

 

The income tax (benefit) expense differs from the federal statutory tax rate generally as a result of changes in the valuation allowance and permanent differences, such as meals and entertainment expenses and state income taxes. A valuation allowance has been provided to reduce the deferred tax assets to the amount that is more likely than not to be realised.

 

The Company has federal net operating loss carryforwards totalling US$61,788,000, which may be used to offset future taxable income. If not used, the carryforwards will expire as follows:

 

Year

US$

2021

945,000

2022

5,497,000

2023

7,720,000

2024

6,412,000

2025

11,136,000

2026

12,197,000

2027

14,131,000

2028

3,750,000

Total loss carryforwards

61,788,000

 

As a result of changes in ownership at the IPO date, the Company estimates there will be future limitations on the utilisation of operating loss carryforwards pursuant to Internal Revenue Code Section 382.  Any unused annual loss limitation carries forward to future year.  The annual limitation on loss carryforwards that could be utilised is approximately US$5,600,000 through the year ending 31 December 2012 and US$2,600,000 after the year ending 31 December 2012.  The cumulative unused loss limitation which carried into the year ended 31 December 2011 is approximately US$8,400,000.

 

The Company files tax returns in the U.S. federal and various state jurisdictions, along with Belgium and Brazil foreign tax jurisdictions. The Company's tax years extending back to the year ended 31 December 2007 remain open to examination for both federal and state jurisdictions. The Company's policy is to recognise interest and penalties related to uncertain tax positions as a component of other income and expense. During the years ended 31 December 2011 and 2010, the Company did not recognise expense for interest and penalties, and does not have any amounts accrued as of 31 December 2011 and 2010, as the Company does not believe it has taken any uncertain tax positions.  The Company does not expect the total amount of unrecognised tax benefits to significantly change during the next 12 months.

 

Cash payments for income taxes were US$850,000 and US$92,772 during the years ended 31 December 2011 and 2010, respectively.

 

Note 11 - Common Stock

 

In accordance with its third amended and restated certificate of incorporation dated 20 December 2007, the total number of shares the Company is authorised to issue is 30,000,000, all of which is designated as common stock with US$0.01 par value. Each share of common stock entitles the holder to one vote on each matter submitted to a vote of the stockholders of the Company. The holders of the common stock shall be entitled to receive dividends when, and if, declared by the Board of Directors of the Company.

 

Note 12 - Stock Options

 

In December 2007, the Company approved a Second Amended and Restated Stock Option and Restricted Stock Plan (the "2007 Plan").  As of 31 December 2011 and 2010, the 2007 Plan reserves 2,330,995 and 2,315,664 of common stock for grant (or 12% of the issued and outstanding common stock). The 2007 Plan permits granting of awards to selected employees, consultants, and directors of the Company in the form of options to purchase shares and shares of restricted stock. Options granted may include nonqualified options as well as incentive stock options. The 2007 Plan is currently administered by the Board of Directors of the Company.

 

The 2007 Plan gives broad power to the Board of Directors of the Company to administer and interpret the 2007 Plan, including the authority to select the individuals to be granted options and restricted stock, and to prescribe the particular form and conditions of each option or restricted stock granted. The 2007 Plan shall continue in effect for a term of 10 years unless terminated sooner under provisions of the 2007 Plan. It is the Company's policy to issue new stock certificates to satisfy stock option exercises.

 

During the years ended 31 December 2011 and 2010, the Company granted 672,500 and 93,000 nonqualified stock options, respectively, to employees and key consultants of the Company. The options were granted at the fair market

value of the common stock on the date of the grant and have a 10 year contractual term. Plan stock options generally vest over four years. Accelerated vesting was applied to grants during the year ended 31 December 2010 to certain employees with long-standing tenure with the Company.

 

A summary of option activity under the 2007 Plan as of 31 December 2011 and 2010, and the changes during the years ended 31 December 2011 and 2010 is as follows:

 


Number

 of Shares

Weighted-

Average

Exercise

Price

(£)

Weighted-

Average

Remaining

Contractual

Term

Aggregate

Intrinsic

Value

(£)

Outstanding as of  31 December 2009

1,262,000

0.63

8.99

637,045               

Granted

93,000

1.63



Exercised

(27,160)

0.62


27,276

Outstanding as of 31 December 2010

1,327,840

0.70

8.08

1,986,119






Granted

672,500

2.10



Exercised

(35,750)

0.39


55,958

Forfeitures

(27,250)

2.01



Outstanding as of 31 December 2011

1,937,340

1.18

7.89

1,368,782

Vested or expected to vest as of 31 December 2011

1,900,389

1.16

7.86


Options exercisable as of 31 December 2011

1,111,340

0.63

7.05

1,269,350

 

A summary of the Company's nonvested options under the 2007 Plan as of 31 December 2011 and 2010 and changes during the years ended 31 December 2011 and 2010 is presented as follows:

 


Shares

Weighted-

Average 

Grant-Date

Fair Value

(£)

Nonvested options, 31 December 2009

750,000

0.29

Granted

93,000

0.99

Vested

(328,000)

0.28

Nonvested options as of  31 December 2010

515,000

0.42




Granted

672,500

0.83

Vested

(334,250)

0.30

Forfeitures

(27,250)

1.07

Nonvested options as of 31 December 2011

826,000

0.78

 

The following is a summary of the Company's stock options outstanding and stock options exercisable under the 2007 Plan as of 31 December 2011:

 



Options Outstanding

Options Exercisable

Exercise Prices

(£)


Options

Outstanding

Weighted-

Average

Exercise Price

(£)

Options

Exercisable

Weighted-

Average

Exercise

Price

(£)

0.39-0.72


946,840

0.42

891,840

0.42

1.15-1.50


275,000

1.47

206,250

1.47

1.70-2.33


715,500

2.07

13,250

1.70

Total


1,937,340

1.18

1,111,340

0.63

 

The Company recognised compensation expense of US$260,836 and US$141,119 during the years ended 31 December 2011 and 2010, respectively. As of 31 December 2011, there was approximately US$757,774 of total unrecognised compensation cost related to nonvested share-based compensation arrangements granted under the 2007 Plan. That cost is expected to be recognised over a weighted-average period of 1.69 years.

 

35,750 and 27,160 options were exercised during the years ended 31 December 2011 and 2010, respectively, at a weighted average exercise price of £0.39 and £0.62.

 

Fair value was estimated as of the grant date based on a Black-Scholes option pricing model using the following weighted average assumptions during the years ended 31 December 2011 and 2010: 

 


2011

2010

Risk-free interest rate

1.94%

2.18%

Expected volatility rate

36.99%

45.79%

Dividend yield

0.0%

0.00%

Expected Life

6.2

6.1

Fair Value per share on grant date

£0.83

£0.99

 

When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.

 

Note 13 - Operating Leases

 

The Company conducts its operations in facilities leased under a number of operating leases. Rent expense under these agreements amounted to US$414,803 and US$374,130 during the years ended 31 December 2011 and 2010, respectively.

 

The following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of 31 December 2011:

 

Year Ending 31 December:

US$

2012

522,565

2013

401,728

2014

2015

409,575

365,903

2016

338,630

Thereafter

415,697

Total minimum payments required

2,454,098

 

Note 14 - Earnings per share

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options and warrants, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the years ended 31 December 2011 and 2010:

 


2011

2010

Net income available to common stock shareholders

US$3,475,113

US$2,203,500

Weighted average shares outstanding for basic earnings per share

19,415,075

17,695,274

Dilutive effect of warrants

-

191,418

Dilutive effect of stock options

830,685

922,998

Weighted average shares outstanding for diluted earnings per share

20,245,760

18,809,690

Basic earnings per share

US$0.18

US$0.12

Diluted earnings per share

US$0.17

US$0.12

 

Note 15 - Employee Benefit Plan

 

The Company sponsors a limited employer matching 401(k) plan for all employees. The plan provides for contributions in such amounts as determined by the Board of Directors, and the employer match is discretionary. Contributions of US$61,121 and $0 were made during the years ended 31 December 2011 and 2010, respectively.

 

Note 16 - Other Cash Flow Information

 

Cash payments of interest were US$95,014 and US$54,884 during the years ended 31 December 2011 and 2010, respectively.

 

During the year ended 31 December 2011, the Company acquired two vehicles and office equipment via leases considered to be capital leases. The capital lease obligation for these assets was US$77,292.

 

During the year ended 31 December 2010, various holders of US$2,322,064 in dollar denominated warrants and 51,874 in share denominated warrants, originally issued in the years 2005 through 2008, in cashless exercises, converted their warrants into 223,125 shares of common stock. From 1 January 2011 through the warrant expiration of 7 January 2011, various holders of US$340,000 in dollar denominated warrants originally issued during the years ended 31 December 2007 and 2006, in cashless exercises, converted their warrants into 28,994 shares of common stock.

 

See Notes 3, 7, 10, and 12 for additional noncash transactions.

 

Note 17 - Major Sources of Revenue

 

The Company receives the majority of its grant revenue under several grant contracts from the National Institutes of Health. During the years ended 31 December 2011 and 2010, the Company received approximately US$1,097,000 and US$1,257,000, respectively. The receivable balances for the granting agencies were US$56,833 and US$82,020 as of 31 December 2011 and 2010, respectively.

 

Note 18 - Board Remuneration

 

During the years ended 31 December 2011 and 2010, the Company's Board of Directors earned remuneration for their activities as directors.  In addition, Mr. Kravitz's renumeration reflects his role as Chief Executive Officer of the Company.  Amounts are as follows:


2011

US$

2010

US$

David Kravitz

614,500

584,300

John Garcia

85,000

85,000

Eric Swenden

42,500

42,500

Andrew Clark

42,500

42,500

Klaas de Boer

42,500

42,500

Steven Mayer

42,500

42,500

 

Note 19 - Related Party Transactions

 

During the year ended 31 December 2010, the Company entered into a consulting agreement with a company in which Steven Mayer, a member of the Company's Board of Directors, is a director. Mr. Mayer performed the consulting services.  Fees for services rendered under the consulting agreement were US$72,000 and US$48,000 during the years ended 31 December 2011 and 31 December 2010, respectively. 

 

Additionally, during the year ended 31 December 2011, the Company did business with a company in which David Kravitz and Steven Mayer are directors and owners.  Fees for products and services rendered were US$85,000 during the year ended 31 December 2011.  As of 31 December 2011, the Company had prepaid US$171,000 for products and services to be rendered during the year ending 31 December 2012

 

 

References

i Moers C, Pirenne J, Paul, A, Ploeg RJ. Machine perfusion or cold storage in deceased-donor kidney transplantation. N.Eng J Med 2012;366:770-1.

ii Eurotransplant data provided on request.

iii OPTN. Available at http://optn.transplant.hrsa.gov/ContentDocuments/PG_Scorecard_090611.xls#.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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